Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Aug 10, 2020

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Important facts to know...

  • Lenders have the right to repossess vehicles when the borrower doesn’t comply with the terms of the loan
  • One of the most common reasons that a car is repossessed from the borrower is when the borrower is 90 days late
  • If you don’t buy insurance and maintain it, the lender has the right to seize your car as soon as they find out
  • Carrying auto insurance is a requirement for all car loans. You must have liability and full coverage on the car
  • If the lender doesn’t repossess your car, it will charge you for forced-placed insurance to protect the company

Lending money to people can be risky. Finance companies that offer auto loan products do stand the chance to make huge profits off of each loan, but that only happens when the borrowers pay their bills on time and satisfy the terms of the contract.

Unfortunately, there will always be borrowers who don’t satisfy the terms of their loans.

But, can your car be repossessed for no insurance? Since auto loans are legally binding financial contracts, when a borrower doesn’t fulfill their end of the bargain, the auto lender can exercise their rights to recoup as much as they can. That means that if you don’t keep full coverage, your car can be repossessed for no insurance.

So what is good car insurance coverage for a financed car? You’ll need full coverage which includes liability, comprehensive, and collision coverage.

Don’t drive without insurance, and don’t pay too much for insurance. Compare top companies side-by-side today!

They can charge the borrower more or they can seize the collateral on the loan. Before you decide to cancel your auto insurance on your financed car, here’s what you need to know about the lender’s rights:

Can not having car insurance be considered a default on a loan?

What happens if you don’t get full coverage on a financed car?

It’s easy to miss a payment, but it’s also easy to violate other terms of your loan.

One other common way to violate the terms of your contract is to go without insurance while there’s still a balance on your loan. This is just as bad of a violation as failing to pay the lender directly.

Every single auto loan contract will have a condition saying that the borrower must have the right type of insurance. If at any time the borrower doesn’t have insurance, it’s a violation of the conditions and you could be in default.

Since driving without insurance is a default, it’s very much possible that the lender could repossess your car for not having insurance.

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Will liability car insurance satisfy lender requirements?

Do I need full coverage on a financed car? What would happen if you don’t have full coverage on a financed car and only keep liability coverage?

You can’t buy just any type of insurance and expect to beat the system for cheap. You are going to be required to carry more than just what the state requires by law when you’re driving around in a financed car. All states require auto insurance but the specifics vary.

The table below show each state’s liability coverage insurance requirements by state from the Insurance Information Institute.

Car Insurance Requirements by State
StateInsurance required Minimum liability limits
ALBI & PD Liab25/50/25
AKBI & PD Liab50/100/25
AZBI & PD Liab15/30/10
ARBI & PD Liab, PIP25/50/25
CABI & PD Liab15/30/5
COBI & PD Liab25/50/15
CTBI & PD Liab, UM, UIM25/50/20
DEBI & PD Liab, PIP25/50/10
DCBI & PD Liab, UM25/50/10
FLPD Liab, PIP10/20/10
GABI & PD Liab25/50/25
HIBI & PD Liab, PIP20/40/10
IDBI & PD Liab25/50/15
ILBI & PD Liab, UM, UIM25/50/20
INBI & PD Liab25/50/25
IABI & PD Liab20/40/15
KSBI & PD Liab, PIP25/50/25
KYBI & PD Liab, PIP, UM, UIM25/50/25
LABI & PD Liab15/30/25
MEBI & PD Liab, UM, UIM, Medpay50/100/25
MDBI & PD Liab, PIP, UM, UIM30/60/15
MABI & PD Liab, PIP20/40/5
MIBI & PD Liab, PIP20/40/10
MNBI & PD Liab, PIP, UM, UIM30/60/10
MSBI & PD Liab25/50/25
MOBI & PD Liab, UM25/50/25
MTBI & PD Liab25/50/20
NEBI & PD Liab, UM, UIM25/50/25
NVBI & PD Liab25/50/20
NHFR only25/50/25
NJBI & PD Liab, PIP, UM, UIM15/30/5
NMBI & PD Liab25/50/10
NYBI & PD Liab, PIP, UM, UIM25/50/10
NCBI & PD Liab, UM, UIM30/60/25
NDBI & PD Liab, PIP, UM, UIM25/50/25
OHBI & PD Liab25/50/25
OKBI & PD Liab25/50/25
ORBI & PD Liab, PIP, UM, UIM25/50/20
PABI & PD Liab, PIP15/30/5
RIBI & PD Liab25/50/25
SCBI & PD Liab, UM, UIM25/50/25
SDBI & PD Liab, UM, UIM25/50/25
TNBI & PD Liab25/50/15
TXBI & PD Liab, PIP30/60/25
UTBI & PD Liab, PIP25/65/15
VTBI & PD Liab, UM, UIM25/50/10
VABI & PD Liab, UM, UIM25/50/20
WABI & PD Liab25/50/10
WVBI & PD Liab, UM, UIM25/50/25
WIBI & PD Liab, UM, Medpay25/50/10
WYBI & PD Liab25/50/20
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If you currently have only third-party liability coverage, it’s just as if you don’t have insurance in the eyes of the lender.

You’ll be required to satisfy state requirements to drive the vehicle that’s registered in your name, but you need more coverage to keep your loan in good standing. Most of the time, the loan calls for full coverage on the property that you’re financing.

Since the car is security collateral, it needs to be protected with comprehensive and collision.

What You Need To Know About Comprehensive and Collision Auto Insurance Requirements

When you’re choosing a loan, you should always look closely at how strict the contract you’re being offered is.

The interest rate is important when it comes to a budget, but there are other factors that are overlooked. You should always look to see what type of insurance is acceptable.

This video from Allstate goes over full coverage and what it covers.

Not only do you have to carry comprehensive and collision to pay for physical damage to the property, but you also have to choose the right deductibles. Most companies won’t allow their borrowers to carry deductibles of $1000 or less.

If you have a sub-standard loan, the maximum deductible will be $500, according to California’s Department of Insurance. This ensures that you can pay to have the vehicle repaired.

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What are the conditions of your vehicle loan?

You should always read through any contract that you’re entering into. You need to know the terms that you’re agreeing to regardless of if you’re financing a car through a dealership, a credit union, or a bank.

Terms can vary from carrier to carrier. The Federal Trade Commission notes that these are the most common auto loan terms you’ll need to know about:

  • You agree to pay the value of the property financed plus interest
  • You agree to make payments by the due date (or the end of the grace period) or you’ll pay a late fee
  • You agree not to sell the property on the loan
  • You agree to buy full coverage auto insurance on the collateral for the entire term of the loan
  • You agree to pay the balance of the loan off even if the vehicle is damaged or inoperable

While the typical consequences for a late payment on car insurance isn’t a repo, too many late payments will lead you down that road with canceled car insurance and a lender who comes knocking.

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When can a lender repossess your car?

When a lender repossesses a vehicle, it means that the lender is seizing the car on the sales agreement because the borrower has defaulted on the contract.

Lenders aren’t allowed to seize a car that’s listed as security on a loan for just any reason. If this were the case, borrowers would have very little protection on under contract law.

There’s more than one type of default. When you pay your car note late, you’re not necessarily in default right when the grace period lapses.

To lenders, a late payment is a delinquency until it’s late for a specified period of time. Under your contract, it will probably say that you must be at least 90 days late before your loan is officially in default. This is when a late payment could lead to the seizure of your vehicle.

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Alternatives To Repossession

If you go into default for non-payment, you’ll more than likely get your car repossessed. The lender doesn’t have to give you a heads up when they come to get the car either.

When the default is because of insurance, many lenders will place a charge for forced-placed insurance on your contract instead of seizing the car.

If you’ve been billed to pay forced-placed insurance, you need to shop for your own coverage right away. Lender insurance is expensive and it doesn’t protect you in any way.

Frequently Asked Questions

We’ve added a few more FAQs below about

What happens if the repo man never finds your car?

If you have no insurance on a financed car, your car may be repoed. But what if the repo man can’t find it? 

Eventually, you’ll end up with a court order to turn the vehicle over and a possible conviction of theft of property that is no longer yours.

Can my car be repossessed if I have the title?

Once you own the car and have the title in your name, the lender can no longer repossess it.

Can my car be repossessed if I have paid more than half of the loan?

Yes. It doesn’t matter if you only owe one more payment on the car. Technically, your car can be possessed until you’ve fully paid back the loans.

How long does it take for a car to get repossessed?

When can a car get repossessed? This really depends on your lender. Some will start the car loan default repossession after the first missed payments, but others will give you a grace period of up to 90 days. 

Many states require the lender to inform you where you can pick up the repossessed car license plates

What happens to your insurance on a repossessed vehicle?

If you had active insurance and your car was repoed for another reason, your auto insurance will remain active as long as you continue to pay for your policy. And it’s in your best interest until your name is no longer attached to the vehicle — typically after it goes to auction.

That’s because your car could still get stolen or vandalized when you don’t have it which can lower its value which then means you’ll owe more when the car won’t fetch as much at auction or if stolen can’t get anything.

To get protection, you should start getting instant insurance quotes. Use our online rate comparison tool, see how much acceptable insurance costs, and satisfy the loan terms to get in good standing.